Last month, the California Association of Realtors® (C.A.R.) released its annual housing market forecast for California. The forecast offers some insights into how the housing market might perform in 2024 based on current trends and projections.
The report outlines an encouraging forecast for the 2024 housing market, driven primarily by anticipated economic factors that point to decreasing mortgage interest rates. This development is expected to invigorate the California home sales sector next year, as both home prices and sales are expected to rise in 2024, reversing the downward trend that occurred in 2023.
The main points may be summarized as follows:
- Sales of existing single-family homes are projected to rise by 22.9%, reaching 327,100 units from the 266,200 projected for 2023.
- The median home price in California is expected to rise by 6.2%, reaching $860,300 in 2024, rebounding from a projected 1.5% decrease in 2023.
- Despite these trends, housing affordability is predicted to remain challenging, with the market continuing to favor sellers due to persistent inventory shortages.
C.A.R. defines "housing affordability" as the percentage of households that can afford to purchase a median-priced home. It currently stands at 17% in California.
Mortgage Rates Expected to Dip
A key element in this forecast revolves around mortgage interest rates. After substantial increases, there's an expectation for a reduction in these rates in 2024, attributed to slower economic growth and subsiding inflation.
C.A.R. President Jennifer Branchini articulates optimism for the coming phase, identifying prospective declines in mortgage interest rates as a pivotal factor:
“2024 will be a better year for the California housing market for both buyers and sellers as mortgage interest rates are expected to decline next year. A more favorable market environment with lower borrowing costs, coupled with an increase in available homes for sale, will motivate buyers and sellers to reenter the market next year.”
At the time of the forecast’s release, the average rate for a 30-year fixed mortgage was approximately 7% — a figure based on nationwide surveys by Freddie Mac.
Inventory to Get a Boost – But Challenges Remain
Some encouraging news for potential homebuyers is the anticipated increase in housing inventory. As market conditions and the lending environment continue to improve, C.A.R. projects a 10% to 20% rise in active real estate listings in 2024.
Despite this anticipated growth, California's real estate market is projected to sustain a supply shortage into 2024, with the available inventory unlikely to meet buyer demand. Consequently, seller’s market conditions will likely persist.
However, it is positive to note that analysts from C.A.R. foresee a moderate rise in listings, a development that would expand options for potential homebuyers.
Economic Factors Underpinning the Forecast
The forecast also incorporates broader economic indicators. The U.S. GDP is projected to grow modestly by 0.7% in 2024, down from a 1.7% increase in 2023. Concurrently, California expects a slowdown in nonfarm job growth and a slight uptick in unemployment rates.
Inflation, a primary concern, is set for a gradual reduction, with the Consumer Price Index (CPI) projected at 2.6% for 2024, down from 3.9% in 2023.
Mortgage interest rates are also central to this outlook. After reaching 6.7% in 2023, average rates for a 30-year fixed mortgage are anticipated to stabilize at around 6.0% in 2024 — relatively high compared to pre-pandemic figures, but a moderation from historical peaks.
C.A.R.’s Senior Vice President and Chief Economist, Jordan Levine, summarized this as follows:
With the economy expected to soften in 2024, the Federal Reserve Bank will begin loosening its monetary policy next year. Mortgage rates will trend down throughout 2024, and the average 30-year fixed rate mortgage could reach the mid-5% range by the end of next year. Buyers will have more financial flexibility to purchase homes at higher prices, which could generate increased housing demand and result in more upward pressure on home prices.
Overall, C.A.R.’s 2024 forecast is optimistic, highlighting potential relief for buyers through lower mortgage rates and increased inventory, albeit within a still competitive market. For sellers, the outlook suggests the possibility of sustained gains.
The 2024 forecast indicates a pivotal year for the California housing market, marked by increased opportunities driven by economic shifts and moderated mortgage rates.